VASGX vs V80A for EU citizen [€35M investment plan]

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Topic Author
mrvntge
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Joined: Sun Sep 25, 2022 4:21 am

VASGX vs V80A for EU citizen [€35M investment plan]

Post by mrvntge »

Hello,

I'd like to invest everything I have in V80A or VASGX. I do believe that these funds are well pondered and interesting for my profile. My strategy is just to buy and hold so I don't really have a preference for ETFs over funds.
Also, both of these options are interesting as in my country there is no tax on unrealised gains so this way I would not be taxed when rebalancing as both are auto-rebalancing and accumulating.

However, I'm struggling to choose between the two. Assets allocation is pretty similar but V80A costs 0.25%/year and VASGX 0.14%.
Would someone be able to advise if I would suffer from any disadvantage or advantage by choosing VASGX instead of V80A being a EU citizen in a Euro country?

Thank you in advance and regards
Topic Author
mrvntge
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Joined: Sun Sep 25, 2022 4:21 am

€35M investment plan

Post by mrvntge »

[Thread merged into here --admin LadyGeek]

Hello,

I am a EU citizen about to sell my company. I now have an acquirer and the deal should be over during Q1/Q2 2023 for a post-tax value of €35M (post-tax €29M now and a post-tax €6M earn out in 2 years).

Regarding my personal situation, I am 32, single, no kids.

I plan on a buying houses for myself and my parents (not more than €5M for both) and live from the incomes of the investment.

I have been reading a lot over the past year on investment and I would be highly grateful to gather your opinions on my investment plan (which would be quite simple):

- 75% in V80A or V60A* (I created another topic on this: viewtopic.php?t=386732) or VSMGX or V60A (any recommendation regarding the split? I tend to be rather aggressive because of my "young" age but I am open to any counter suggestion)
- 22% in short-term bonds or inflation-indexed bonds (any recommendation between the two?)
- 3% on deposit accounts

I am thinking of leveraging as much as I can with a Lombard facility (margin loan / rate between 1 to 2%) to extend the total sum (maybe by 60 to 70%) and invest it as per the above strategy.

*My overall investment profile is just to buy and hold so I don't really have any preference for ETFs over mutual funds. Also, both of these options are interesting as in my country there is no tax on unrealised gains so this way I would not be taxed when rebalancing as both are auto-rebalancing and accumulating.

Thank you very much in advance for your replies!
Tellurius
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Re: €35M investment plan

Post by Tellurius »

Firstly, congratulations! You’ve won the game!

Specifying country will enable other posters to comment on your specific tax and real estate situation, which may affect your returns significantly.

As to margin, which I feel qualified to talk about, behaviourally it is a very bad idea. One must learn to say enough. I know that you may have succeeded by not doing that but you should try and train yourself to recognise that you are now in a different situation. No reason for margin, why take the risk and the cost when you can already live a lifestyle beyond most regular people’s wildest dreams and still have a LOT of money remaining?
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” | ― Susanna Clarke, Jonathan Strange & Mr Norrell
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by LadyGeek »

mrvntge, Welcome! I have merged your threads so we can see everything in one discussion. In that manner, we won't miss important information. If you have any questions, ask them here.

What is your home country?
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
mrvntge
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by mrvntge »

Many thanks for your kind words and for having merged my posts. I initially thought that it would be more appropriate to split it.

To answer your question regarding my country, I'm currently in Luxembourg and will stay there until the end of the earn out period (2 years). Then I'll move back to France (my birth country).

And regarding leveraging, you may indeed be correct. As an entrepreneur I'm always looking to overoptimize and leverage everything I can so I should try to calm down a little bit...
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alpine_boglehead
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by alpine_boglehead »

Well, congrats. Both on your windfall, and on hitting the bogleheads forum before running into investment salespersons.

In your situation I'd talk with several tax advisors (tax advisors, not investment advisors) regarding the tax handling of ETFs, whether the tax situation is really as you think it is. At least in my corner of Europe, things are relatively complicated (e.g. capital gains realized within a fund are also taxed).

If you're an optimizer - even though I'm usually for one-stop ETFs (such as Vanguard FTSE All-World, which is pretty much what's in the equity portion of V80A), you might look into ETFs with lower expense ratios (V80A has 0.25% ER).
You can use Vanguard FTSE Developed World (ER 0.12%) and Vanguard FTSE Emerging Market (ER 0.22%) and Vanguard Global Aggregate Bond EUR Hedged (ER 0.10%) to build the same portfolio, and save about 20k per year.

I wouldn't leverage, and certainly not as much as you can, there's just no need. Why risk losing everything in your situation? (which is what you might run into if the global economy really goes south). Even at 100% equities and with stocks dropping a catastrophic 90%, you'd be leading a lush life with 3M in your account. With leverage, you'd long be wiped out.

Also, it's a bit contradictory - investing in a 80/20 fund, and then e.g. leveraging that even though you have 20% bonds. You could as well go 100% equities, and not use leverage (well, it's not 100% the same, but roughly).

If that helps you - many companies make liberal use of debt (the optimize :D ), so stocks are to a certain extent already a leveraged investment.
Topic Author
mrvntge
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by mrvntge »

Thank you for your reply alpine_boglehead!

I indeed have a tax advisor who will manage the tax side of things.

Regarding your suggestion to minimize costs by opting for a DIY portfolio, in this scenario I would have to rebalance myself, hence be taxed on what I sell. In my country there is no tax applied on unnrealized gains so with an auto-rebalancing all-in-one ETF I would avoid that.
Also, this was the reason of my initial question. I noticed that for instance VASGX (which is a mutual fund) costs 0.14% while V80A (which is an ETF) costs 0.25%. The assets are quite similar so I was wondering whether I would have any disadvantage (as a buy and hold investor) by choosing VASGX over V80A.

Fully noted regarding not leveraging :)

And regarding the portfolio in itself and split, any counter advice?
TedSwippet
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by TedSwippet »

I'm assuming below you are not a US citizen or US green card holder. Please correct if this is wrong.
mrvntge wrote: Sun Sep 25, 2022 4:27 am However, I'm struggling to choose between the two. Assets allocation is pretty similar but V80A costs 0.25%/year and VASGX 0.14%.
Would someone be able to advise if I would suffer from any disadvantage or advantage by choosing VASGX instead of V80A being a EU citizen in a Euro country?
Are you sure you can even gain access to VASGX, and/or VSMGX, mentioned in your other thread? Both are US domiciled mutual funds designed for US investors, and as far as I know, there is no route for ordinary non-US investors to access these.

Beyond that, for you, investing in any US domiciled fund would subject you to some US tax baggage that you probably very much want to avoid. Both France and Luxembourg have US income tax treaties, giving you a 15% US tax rate on dividends from US stocks and US domiciled funds. However, while France has a decent US estate tax treaty, Luxembourg has none. The US estate tax exemptions are a miserly $60k standard for non-treaty countries, and around $12mm for countries with good US estate tax treaties treaty countries. With a portfolio approaching €35mm though, you risk either usurious or beyond usurious US estate taxes (depending on country of domicile) if you hold US domiciled funds or ETFs.

Even if you could use VASGX, VSMGX, or any other US domiciled mutual funds or ETFs, US tax rules very strongly suggest that you should not.

For background reading: Nonresident alien taxation and Nonresident alien investors and Ireland domiciled ETFs
Topic Author
mrvntge
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Joined: Sun Sep 25, 2022 4:21 am

Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by mrvntge »

Ouch :oops:, indeed, I wasn't aware of that fact. Thanks a lot for your reply which definitely sorts out my question about VASGX vs V80A!
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alpine_boglehead
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by alpine_boglehead »

Regarding the portfolio split itself (V80A, bonds, deposit accounts), that sounds very reasonable.
3% in deposit accounts sounds good as you want to be as liquid as possible with money you intend live off in the near future (e.g. there can be trading halts for some time). It would probably be good to stay within the deposit insurance limit of €100k per bank.

By the way, you can take a look at the extensive wiki page about managing a windfall.

Some forum members have a 50/50 split between nominal bonds and inflation indexed bonds, so you could do that as well. Both have their advantages and disadvantages. With V80A or V60A, you already own a chunk of nominal bonds - about €4.5 million (30 * 75% * 20%).

Regarding buying the ETFs - I'm not an expert, something that comes to my mind is spreading the buying in some chunks to not get disadvantageous spreads/prices. On the other hand, market makers should be able to absorb buy orders in the magnitude of millions (producing new ETF shares along the way). Maybe someone more knowledgeable can chime in here.

Overall, it's not the worst time to invest a windfall - the start of 2022 would have been worse :wink:
helloyou
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Re: VASGX vs V80A for EU citizen [€35M investment plan]

Post by helloyou »

alpine_boglehead wrote: Sun Sep 25, 2022 12:05 pm Regarding the portfolio split itself (V80A, bonds, deposit accounts), that sounds very reasonable.
3% in deposit accounts sounds good as you want to be as liquid as possible with money you intend live off in the near future (e.g. there can be trading halts for some time). It would probably be good to stay within the deposit insurance limit of €100k per bank.

By the way, you can take a look at the extensive wiki page about managing a windfall.

Some forum members have a 50/50 split between nominal bonds and inflation indexed bonds, so you could do that as well. Both have their advantages and disadvantages. With V80A or V60A, you already own a chunk of nominal bonds - about €4.5 million (30 * 75% * 20%).

Regarding buying the ETFs - I'm not an expert, something that comes to my mind is spreading the buying in some chunks to not get disadvantageous spreads/prices. On the other hand, market makers should be able to absorb buy orders in the magnitude of millions (producing new ETF shares along the way). Maybe someone more knowledgeable can chime in here.

Overall, it's not the worst time to invest a windfall - the start of 2022 would have been worse :wink:
On this ETF specifically, the NAV is around 150M I believe so all in investment from OP would account for 20% of current NAV. I’m no expert but something to keep in mind in terms of how the ETF will manage to deal with the liquidity. I don’t think it would be an issue but maybe someone else can chime in here?
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